Credit-deposit ratios (based on sanctions) stood at 55.5 per cent in 1997-98, down from the 57.3 per cent in the preceding fiscal. The CD ratio for the eastern region stood at 39.8 per cent (43.3 per cent) with the north-eastern region at 29.9 per cent (31.2 per cent). The southern region recorded the best CD ratio with 72.3 per cent though even this is a sharp dip from the 76.1 per cent in 1996-97, followed by the northern region at 51 per cent (53.9 per cent) and western region at 65.5 per cent (63.2 per cent). The central region registered 35.1 per cent (37.3 per cent). Among the states, Tamil Nadu had the highest CD ratio at 96.1 per cent (100.3 per cent) with Arunachal Pradesh at 13.1 per cent (10.7 per cent).

SCB recoveries: Quite a story

The recovery performance of state co-operative banks is nothing to crow about. While on an all-India basis, recovery stood at 81 per cent in 1997-98 -- down from the 86 per cent in the preceding fiscal -- the same isquite abysmal in quite a few states: Arunachal Pradesh (27 per cent), Assam (25 per cent), Bihar (18 per cent), Manipur (9 per cent), Meghalaya (15 per cent), Mizoram (15 per cent), Nagaland (25 per cent), and Tripura (28 per cent). Among the top performers, Gujarat and Punjab topped with 100 per cent, with Himachal Pradesh at 99 per cent. States with recovery percentages of 80 per cent and above include Madhya Pradesh, Karnataka, Maharashtra, Kerala and Tamil Nadu.

Credit is bleak

The RBI says that medium and large industry accounted for 41 per cent of the incremental non-food gross bank credit in 1997-98, as against 32.6 per cent in the previous year. Within the industrial sector, substantial increase in bank credit was evidenced in respect of iron and steel (Rs 4,099 crore as compared with Rs 3,186 crore in 1996-97), electricity (Rs 1,146 crore vs Rs 803 crore in 1996-97), cotton textiles (Rs 1,278 crore Vs Rs 461 crore in 1996-97), chemicals (Rs 2,727 crore vs a decline of Rs 1,057 crore in1996-97) and petroleum (Rs 2,781 crore vs Rs 1,864 crore in 1996-97). The industries, which witnessed a substantial decline/deceleration in bank credit included electronics-a decline of Rs 227 crore over and above the decline of Rs 577 crore in 1996-97. Credit to other metal and metal products declined by Rs 83 crore as against a rise of Rs 1,299 crore in 1996-97.

During April-June 1998, credit to the industrial sector declined by Rs 6,492 crore as compared to a decline of Rs 3,767 crore in the corresponding period last year with significant declines in the case of engineering, petroleum, and iron and steel industries.

Pricing risks

The Reserve Bank has advised banks to move away from unscientific practices of pricing risks based on perceptions about customers to a more scientific practice based on technical assessments of risks involved. "Embracing scientific risk management practices will not only improve banks' credit management processes and increase profits, but also enable them to nurtureand develop mutually beneficial relationships with customers," the Reserve Bank said in its Report while reiterating that there is nothing like zero-risk lending and banks have to develop in-house expertise to manage risks effectively. The central bank has called for the need to develop the necessary expertise to meet the financing requirements of infrastructure and other large investment projects.

Capital adequacy

The Reserve Bank has observed that an increase in the capital adequacy ratio should not be at the expense of shedding loans. "Viewed from the regulatory and supervisory point of view, it is important to note that enhancement of bank capital has to be based on each bank's assessment of its optimal level of capital given its risk exposure," the RBI said in its report on banking trends in 1997-98. In a scenario where banks are increasing their non-traditional activities substantially, capital is the only resource available to banks to absorb any adverse effects on account of suchactivities. Therefore, an increase in capital standards would be the right signal for supervision of the banking industry, the central bank said.